Don't Look at Technology for Leadership

NEW YORK ( TheStreet) -- Monday's trading session saw a bounce in risk-assets after heavy volatility and weakness last week. A number of announcements coming from technology companies helped lift markets, but technology leadership has, as of late, had no correlation with long term strength in risk assets. Evidence for this argument is presented later in the article.

This weekend Federal Reserve Chairman Ben Bernanke stated spikes in inflation were not a threat to our economy over the near term. This is another way of saying that tepid growth will continue to be the norm. With GDP readings coming out this Friday, it does not seem like there is much of a chance that the reading surprises to the upside.

Lastly, companies have continued to come out this earnings season with downgraded outlooks and more cautious speculation for future performance. Equity has been driven by corporate profitability as of late, so weak outlooks for the rest of 2013 could give reason for an equity pullback soon.

Source: Stockcharts.com

The G20 discussed Japan's heavy easing measure last week and essentially gave its blessing by not condemning the actions. This gave traders even more justification in dumping the yen and piling into currencies such as the euro and U.S. dollar.

Currencies that did not see the same type of boost were commodity linked currencies. The Canadian dollar and Aussie dollar both showed indecision in the matter and have greatly consolidated in recent trading periods.

The CurrencyShares Australian Dollar Trust over CurrencyShares Japanese Yen Trust pair shown above highlights this sentiment. Weakness out of China and overall fears for global growth look to keep this pair in a range. A pullback in U.S. equity should drive this pair lower as well.

Source: Stockcharts.com

U.S. homes data released Monday looked resoundingly weak. The disappointing readings show momentum in the housing sector may be waning. Economic indicators in general, as of late, have not been impressive, and look to compromise the wave of strength that the U.S. economy saw early in the first quarter.

With home data coming in mixed recently, it looks as if the Dow Jones U.S. Home Construction Index Fund over (RSP) S&P Equal Weight ETF pair has traded lower, indicating weakness. Weak economic fundamentals as well as a weak U.S. corporate picture could derail the U.S. equity uptrend.

Stockcharts.com

The last indicator above is of Technology Select Sector SPDR over S&P Equal Weight ETF. On Monday, there was a fair share of positive news coming out of technology companies that buoyed equity markets. The pair, pictured above, highlights the relative lack of importance technology has been lately.

Technology, due in large part to Apple, as seen in the table below, lagged the broader markets as equities raced to new highs. This does not say anything about future price action, but merely cautions that a strong technology sector may not keep markets from pulling back in the near future.

Source: etfdb.com

At the time of publication the author held no positions in any of the stocks mentioned. Andrew Sachais